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Oil surges on escalating Israel-Gaza violence

Oil prices spiked Monday as violence intensified in the Israel-Gaza conflict, sparking fresh concern about supplies from the crude-rich Middle East, and after a pre-weekend blast on an oil rig in the Gulf of Mexico.

The market also rallied on rising prospects that top oil consumer the United States can avoid a return to recession by pulling back from a "fiscal cliff" of tax increases and spending cuts due to take effect on January 1.

In late afternoon deals in London, Brent North Sea crude for January delivery hit a one-month high at $US111.90 per barrel -- a level last seen on October 22. It later stood at $US111.77, up $US2.28 from Friday's closing level.

New York's main contract, light sweet crude for delivery in January, or West Texas Intermediate (WTI) soared $US2.52 to $US89.44 a barrel.

"The on-going conflict between Israel and Palestine, which has stoked fears about supply of oil across the Middle East region, continues to provide the main source of support to prices," added GFT Markets analyst Fawad Razaqzada.

"Also lifting crude oil today was news that Republican and Democratic lawmakers are showing more willingness to find a compromise on the US fiscal cliff, even though major challenges remain."

Israeli air strikes killed 22 people in Gaza on Monday, raising the overall death toll to 99 on the sixth day of a relentless bombing campaign.

In the latest raids, one person was killed when Israeli warplanes hit the Shuruq tower media centre in Gaza City, which houses Palestinian and international media outlets, among them official Hamas broadcaster Al-Aqsa TV.

Islamic Jihad sources named him as Ramez Harb and said he was a senior commander in its armed wing, the Al-Quds Brigades.

Capital Economics analyst Julian Jessop said traders were concerned over whether Israel would launch a land assault -- and whether key crude producer Iran would be drawn into the conflict.

"The immediate concern is whether Israel will launch another land assault on Gaza, as it did in December 2008," Jessop said.

"However, Israel's new anti-missile shield has probably reduced the military benefit of putting troops on the ground, while the political costs may be greater given the changes elsewhere in the region."

He added: "On balance, we think -- and hope -- that the latest phase of the conflict will end soon with at least a temporary ceasefire.

"The wider issue is the risk that the conflict spreads, perhaps encompassing an Israeli strike on Iran."

Oil price support also came from an explosion which rocked a rig operated by Houston-based Black Elk Energy in the Gulf of Mexico on Friday, even though it did not cause a spill.

Divers hired by the owner of the rig found one body on Saturday. Two workers have been missing since the accident but Coast Guard spokesman Carlos Vega would not say if the body found is that of one of those two people.